US tariff, global uncertainties dented business confidence in Q2 of FY26, says NCAER

The share of firms expecting production to increase in the next six months went up from 79 per cent in Q1 to 82 per cent in Q2
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For the first time in four quarters, business sentiment in India moderated during the July-September quarter (Q2 of FY26), according to the National Council of Applied Economic Research (NCAER), an economic think tank, which announced this on Monday.

“In the midst of high global uncertainties, including additional US tariffs, business sentiment in India moderated in the second quarter of the current fiscal after improving for three previous quarters consecutively,” NCAER said in its latest Business Expectations Survey. However, it said the effect of GST rate cut is expected to be felt over the remaining two quarters.

The survey is based on responses from 484 companies spread across six cities and it was conducted days after the Trump administration announced additional tariffs on Indian goods. It may be noted that penal tariff, which was made effective from August 27, took the total tariff to 50 per cent.

The survey report said that the Business Confidence Index (BCI) moderated to 142.6 in second quarter of 2025-26 from 149.4 in the first, though it was higher than the corresponding Q2 of FY25 (134.3). The BCI is based on four components – ‘overall economic conditions to improve in next six months’; ‘financial position of the firms will improve in next six months’; ‘present investment climate’; and ‘whether present capacity utilisation was close to or above optimal level’.

Growth momentum

The BCI was driven down by the moderation of sentiments in three of the four components, except ‘present capacity utilisation’, which saw an improvement. Overall, the share of positive responses remained above 50 per cent in the second quarter for all four components, signalling a relatively slower growth momentum, the report mentioned.

“The components dealing with macro sentiments were relatively more negatively affected, while the impact was mixed for sentiments at the micro level,” said NCAER’s Prof Bornali Bhandari, who led the Survey. Sentiments differed across firm size. While the BCI for MSMEs (turnover of ₹100 crore or less) marginally went up from 137 in Q1 in 2025-26 to 138 in Q2., it went down from 171.6 in Q1 to 149.9 in Q2 for large firms (annual turnover of over ₹100 crore).

The share of firms expecting production to increase in the next six months went up from 79 per cent in Q1 to 82 per cent in Q2. However, a significant share of firms (44 per cent) expected this increase to be between zero and five per cent. The share of firms expecting exports of final products to increase went up from 67 per cent in Q1 to 73 per cent in Q2. However, 47 per cent of firms expected the increase to be between zero and five per cent. The sentiments about pre-tax profits eased with 54 per cent of firms expecting it to rise in Q2 as compared to 61 per cent in Q1, the survey said.

Published on October 27, 2025